Government opts for domestic funding in airlines revival

Kampala. Government has deferred delivery of its first aircraft from Canadian manufacturer Bombardier to the end of March after President Museveni opted for domestic financing over borrowing.
The President has also turned down pleas from the Uganda Airlines interim board for a six-month delay in the launch date, insisting the carrier must take off within two months ending June.

The project team had also requested that the delivery of the pair of Airbus A330-800 Neo earmarked for long-haul operations be deferred to December 2022, but President Museveni reportedly wants them in Entebbe by December 2020, irrespective of whether the routes are available or not.

Ms Monica Azuba, the Works minister, which is directly responsible for the revival project, confirmed change in delivery dates, saying the aircraft would definitely be handed over at the end of this month.
However, she did not clarify if this would be a tandem delivery involving the two aircraft that Bombardier is so far ready to hand over.
“Take it from me that we shall be ready to receive the aircraft at the end of March,” she said but declined to speak about the financing arrangements for the fleet, referring this reporter to the Finance Ministry. Treasury Secretary Keith Muhakanizi did not respond to our calls.

However, a government source confirmed the reports about President Museveni opting for domestic financing.
“We are trying to raise funds from local sources because loans can be expensive. The process is ongoing and once we have secured the funds, we shall be ready to take delivery of the aircraft,” the source said.
David Bahati, the state Finance minister, recently told a committee in Parliament that government was seeking approval for supplementary funding to cover the purchases.

He said the drawdowns on the consolidated fund would be partially covered by proceeds from the MTN licence renewal that President Museveni had initially set at $100m.
Earlier AfriExim Bank had offered to provide bridging finance for the project at a rate of or under 6 per cent per annum.
However, sources familiar with the deliberations, said President Museveni was alarmed by the frequent shift of goalposts by Finance officials, which had dragged the project towards expensive financing terms.

This was after they persuaded Cabinet to put on hold AfriExim’s offer, which came in at slightly above 5.6 per cent, so that alternative offers, some as low as 2.8 per cent, could be vetted by the Financial Intelligence Authority (FIA).
The outcome of this process was not immediately available. In an earlier interview, FIA chief Sydney Asubo said he was not at liberty to discuss matters of his advice to government outside designated channels.
But, in what was being fronted as a last-ditch effort in view of the slipping deadlines, Treasury officials were suggesting that the project accept bridging finance from local bank at commercial rates ranging between nine to 10 per cent.

Other challenges
Recruitment of sales and marketing staff continues to lag. Some posts such as the 2,600 applicants but the board has insisted on conducting interviews at its own pace.
The Internal Security Organisation has also reportedly vetoed the recruitment of some pilots over security concerns. The matter has been referred to President Museveni for resolution.
There is also a risk that some key position holders may decline to take up the posts they have been offered after the board unilaterally revised their compensation downwards.

Sources say salaries for cockpit crew were unilaterally cut to half of what had been recommended in the business plan.
Internal frustration over these developments triggered an appeal for intervention to Dr Joseph Muvawala, the executive director of the National Planning Authority, which initially conceived the national carrier’s revival project and enjoys an overseer’s role.
In a March 6 letter based on the contents of an internal memo to the Permanent Secretary Ministry of Works, Dr Muvawala raises concerns over reported deviations from the approved plan.

“I totally agree with the management team that the issue of consistency of salaries within the same level and the competitiveness of salaries for some staff levels need to be sorted out before appointment letters are issued. Kindly note that the quality of staff and level of motivation are critical success factors for an airline,” Dr Muvawala writes.
He also cites the delays in the recruitment and training of staff as well as the setting up of the marketing and sales systems.

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